| Filed by Wachovia Corporation pursuant to Rule 425 under the Securities Act of 1933, as amended, and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934, as amended
Subject Company: Golden West Financial Corporation
Commission File No.: 1-4629
Date: June 1, 2006 |
This filing may contain certain forward-looking statements with respect to each of Wachovia Corporation (“Wachovia”) and Golden West Financial Corporation (“Golden West”) and the combined company following the proposed merger between Wachovia and Golden West (the “Merger”), as well as the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without limitation, (i) statements relating to the benefits of the Merger, including future financial and operating results, cost savings, enhanced revenues and the accretion/dilution to reported earnings that may be realized from the Merger, (ii) statements relating to the benefits of the merger between Wachovia and Westcorp and Wachovia’s related acquisition of WFS Financial Inc (“WFS Financial”), a subsidiary of Westcorp, completed on March 1, 2006 (the “Westcorp Transaction”), including future financial and operating results, cost savings, enhanced revenues and the accretion/dilution to reported earnings that may be realized from the Westcorp Transaction, (iii) statements regarding certain of Wachovia’s and/or Golden West’s goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (iv) statements preceded by, followed by or that include the words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, “projects”, “outlook” or similar expressions. These statements are based upon the current beliefs and expectations of Wachovia’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond Wachovia’s control).
The following factors, among others, could cause Wachovia’s financial performance to differ materially from that expressed in such forward-looking statements: (1) the risk that the businesses of Wachovia and/or Golden West in connection with the Merger or the businesses of Wachovia, Westcorp and WFS Financial in connection with the Westcorp Transaction will not be integrated successfully or such integration may be
more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the Merger or the Westcorp Transaction may not be fully realized or realized within the expected time frame; (3) revenues following the Merger or the Westcorp Transaction may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Merger or the Westcorp Transaction, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the ability to obtain governmental approvals of the Merger on the proposed terms and schedule; (6) the failure of Wachovia’s and/or Golden West’s shareholders to approve the Merger, respectively; (7) the strength of the United States economy in general and the strength of the local economies in which Wachovia and/or Golden West conducts operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on Wachovia’s and/or Golden West’s loan portfolio and allowance for loan losses; (8) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (9) potential or actual litigation; (10) inflation, interest rate, market and monetary fluctuations; and (11) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on Wachovia’s capital markets and capital management activities, including, without limitation, Wachovia’s mergers and acquisition advisory business, equity and debt underwriting activities, private equity investment activities, derivative securities activities, investment and wealth management advisory businesses, and brokerage activities. Additional factors that could cause Wachovia’s and Golden West’s results to differ materially from those described in the forward-looking statements can be found in Wachovia’s and Golden West’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning Wachovia or the proposed Merger or other matters and attributable to Wachovia or Golden West or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia and Golden West do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this filing.
The proposed Merger will be submitted to Wachovia’s and Golden West’s shareholders for their consideration. Wachovia has filed a registration statement, which includes a preliminary joint proxy statement/prospectus, and each of Wachovia and Golden West may file other relevant documents concerning the proposed Merger with the SEC. Shareholders are urged to read the registration statement and the definitive joint proxy statement/prospectus regarding the proposed Merger when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the definitive joint proxy statement/prospectus, as well as other filings containing information about Wachovia and Golden West, at the SEC’s website (http://www.sec.gov). You will also be able to obtain these documents, free of charge, at Wachovia’s website (http://www.wachovia.com) under the tab “Inside Wachovia – Investor Relations” and then under the heading “Financial Reports - SEC Filings”. Copies of the definitive joint proxy statement/prospectus and the SEC
filings that will be incorporated by reference in the definitive joint proxy statement/prospectus can also be obtained, free of charge, by directing a request to Wachovia Corporation, Investor Relations, One Wachovia Center, 301 South College Street, Charlotte, NC 28288-0206, (704)-374-6782; or to Golden West, Attn: Investor Relations Department, 1901 Harrison Street, Oakland, CA 94612, (510) 445-3420.
Wachovia and Golden West and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Wachovia and/or Golden West in connection with the proposed Merger. Information about the directors and executive officers of Wachovia is set forth in the proxy statement for Wachovia’s 2006 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 13, 2006. Information about the directors and executive officers of Golden West is set forth in the proxy statement for Golden West’s 2006 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 10, 2006. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the definitive joint proxy statement/prospectus regarding the proposed Merger when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.
THE FOLLOWING MATERIALS WERE POSTED ON WACHOVIA’S WEB SITE
Investor Update
June 2006
Wachovia Corporation
Wachovia in perspective
First Union and Wachovia Corporation merged in 2001, adopting the legacy Wachovia name with headquarters in Charlotte, NC
#4 assets – U.S. bank holding companies #3 U.S. deposit share
3rd largest retail brokerage firm Key Statistics
Market Cap: $86 billion Assets: $542 billion Deposits: $329 billion Employees: 97,000 2005 Net Income: $6.6 billion
Note: Financial data as of March 31, 2006. Market data as of May 18, 2006 Figures do not include Golden West.
Top Ten US Banks Total Assets
Company ($bn)
1 Citigroup 1,586
2 Bank of America 1,375
3 JPMorgan Chase 1,273
4 Wachovia 542
5 Wells Fargo 492
6 U.S. Bancorp 210
7 SunTrust 179
8 National City 140
9 BB&T 110
10 Fifth Third 105
Top Ten World Banks Market Cap
Company ($bn)
1 Citigroup 242
2 Bank of America 220
3 HSBC 203
4 Mitsubishi-Tokyo 154
5 JPMorgan Chase 149
6 UBS 123
7 W ells Fargo 110
8 RBS 101
9 Santander 91
10 Wachovia 86
Page 1 – June Investor Update, 2006
Page 2 – June Investor Update, 2006
Diversified franchise
2005 Revenue — $26.1 billion*
Parent $1.1B
4%
Wealth Management $1.3B
5%
Capital Management $5.2B
20%
Corporate & Investment Bank $5.8B
22%
General Bank $12.8B
49%
* Represents tax-equivalent revenue.
** Excludes merger-related and restructuring expenses of $167 million after-tax in 2005.
#Other data as of 3/31/06.
Key Business Segments#
General Bank (57% of earnings**)
Retail, small business and commercial banking 11 million retail and small business customers 3,150 branches, 5,100 ATMs No. 3 US, No. 1 Southeast deposit market share
Corporate and Investment Bank (25%)
Corporate Lending, Investment Banking, Treasury Services, International Trade Finance
Top 3 structured products, leveraged loan syndications Top 10 high yield, high grade, preferreds, equities
Capital Management (9%)
Retail Brokerage: 10,400 registered reps, $689 billion broker client assets (No. 3 US) $299 billion AUM and Securities Lending Mutual Funds: $107 billion AUM (Top 20 US)
Wealth Management (4%)
45,100 clients, $68 billion client AUM (No. 4)
500 Insurance Brokers
Page 3 – June Investor Update, 2006
Superior customer service drives strong deposit growth
2005 ACSI* —University of Michigan
WB led survey for the 5th year in a row
Top 10 Service among all Retailers
Score
2005 vs. 2000
Wachovia 79 +19.7% (#1)
All Others 78 +8.3%
Bank of America 72 +14.3%
JPM/Bank One 70 0.0%
Wells Fargo 67 0.0%
*American Customer Satisfaction Index.
Core deposits**
($ billions)
CAGR
11.4%
$279
$255
$209
$190
$181
2001
2002
2003
2004
2005
Low Cost Core Deposits
Core Deposits
**For comparative and illustrative purposes. Average core deposits include additions of ($billions): legacy Wachovia in 2001: $26.2; legacy SouthTrust in 2001: $22.4; 2002: $23.9; 2003: $25.6; 2004: $23.0. Low-cost core deposits include: legacy Wachovia in 2001: $18.4; legacy SouthTrust in 2001: $15.4; 2002: $16.9; 2003: $18.1; 2004: $16.6.
* Data as of March 31, 2006; excludes goodwill of $23.4B and other intangibles of $1.5B.
Page 4 – June Investor Update, 2006
Conservative balance sheet
Diversified, Liquid Asset Mix*
Cash & Equivalents
6%
Trading Assets
8%
Other
9%
Securities
23%
Loans, net
54%
Funding Breakdown*
Other Deposits
6%
Other Liabs
4%
Short Term Debt
14%
Long Term Debt
14%
Tangible Common Equity
5%
Core Deposits
57%
Page 5 – June Investor Update, 2006
Stable NIM despite yield curve compression
Net Interest Margin vs. Market Rates
(percent)
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
Spread: -350 bps
NIM: -16 bps
Net Interest Margin
Fed funds target
10-year bond
Page 6 – June Investor Update, 2006
Increasing contribution of fee income $ millions $3,800 $3,600 $3,400 $3,200 $3,000 $2,800 $2,600 $2,400 $2,200 $2,000
CAGR: NII 12%;
Fee Income 19%
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
Fee and other income
Net interest income
Page 7 – June Investor Update, 2006
Improving operating leverage*
Staffing effectiveness and efficiency End to end process improvements Outsourcing Sales and service effectiveness Line of business effectiveness
63.6%
59.1%
60.6%
60.0%
58.0%
57.8%
52 - 55%
2001 2002 2003 2004 2005 1Q06 2007 Goal
* Overhead efficiency ratio excludes merger-related and restructuring charges, changes in accounting principle and intangible amortization. 2007 not a projection; results may differ from expectations for a number of reasons.
Page 8 – June Investor Update, 2006
Consistent, growing operating earnings $ millions, except per share data
0.58
0.66
0.68
0.71
0.72
0.81 0.79
0.88 0.88
0.98
0.98
1,501 1.00
1,698 1,652
1,716 1,744 1,774
1.11 1.12 1.09
1.07 1.03
0.99
1,318
1,299 1,299
1,171 1,175
1,092 1,067
983 987 944
908
799
4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06
Earnings*
EPS*
Wachovia Corp. Since 4Q01
EPS CAGR
17%
Earnings CAGR
20%
*Represents net income available to common shareholders excluding after-tax merger-related and restructuring expenses; compound growth figures exclude merger-related and restructuring expenses of $46 million ($0.03) in 1Q06 and $63 million ($0.04) in 4Q01.
*Prior to consummation
**Wachovia’s share of one-time costs (no cash changed hands)
***Pending merger: cost based on four trading days surrounding announcement on 5/8/06; market cap as of 5/5/06
Page 9 – June Investor Update, 2006
Acquisition history
A disciplined approach
41.4% 1.1% 22.7% 4.9% 25.4%
Ken Thompson named CEO
First Union/ Wachovia merger
Wachovia brokerage JV with Prudential
Wachovia/ SouthTrust merger
Wachovia/ Westcorp merger
Wachovia/ Golden West merger***
Transaction Value
WB Mkt Cap*
Transaction Value/Mkt Cap $13.3B $0.6B** $14.4B $4.3B $24.3B $33.1B $33.8B $54.0B $64.4B $87.1B $95.5B
Est. 4Q06
April 2000
September 2001
June 2003
November 2004
March 2006
*Assets as of 3/31/2006. Market cap as of 5/18/2006
Page 10 – June Investor Update, 2006
Golden West: Overview $128 billion* asset thrift/mortgage company; superior ratings
Ranks 11th in assets, 10th in market cap* among US depository institutions Golden West (holding company) – A1, A+ World Savings (depository subsidiary) – Aa3, AA-Only US thrift ever to be rated AA
Low-risk, superior performance history
CAGR EPS growth 19% since 1966 29% efficiency ratio
Retail branch network
285 highly-visible branches located in high-growth, high-income metro areas Similar demographics to Wachovia’s Florida market 10-year average deposit growth of 10%
Mortgage lending $120 billion mortgage portfolio, generated primarily through mortgage brokers, builders, realtors, financial planners, and retail customers 99% of assets in ARM product; 25-year history of ARM originations 15-year average charge-offs 5 bps (18 bps peak in 1994)
Accelerates long-term growth rate Accretive to cash EPS in second year IRR of 17% Analysis based on achievable assumptions
Compelling revenue synergies not included in financial model
Accelerates retail momentum in high growth markets driving sustainable growth
Expands high growth opportunities
Accelerates California presence and expands entry into high-growth states – become Top 5 bank in Western US
Solidifies national consumer lending presence with #7 mortgage originations market share
Diversifies Wachovia’s balance sheet into higher yielding low risk assets
Consumer loans / total loans increases to 62% Reduces normalized charge-off ratio
Strategic Rationale
Financially Attractive
Low Risk Transaction
Complementary sales and service focused model Strong credit culture and pristine credit quality Straight-forward and simple systems environment
Assumptions validated by recent, highly successful integration history
Page 11 – June Investor Update, 2006
Combination strengthens Wachovia’s retail franchise and growth profile
5.9% combined national market share
Footprint MSAs cover 55% of US population
High growth / high wealth markets
8.8% projected population growth in core markets vs. 6.3% US average(1) $91K average household income vs. $61K US average(2)
Creates Top 5 bank in Western US(3)
– # 6 pro forma rank in California
US Banking Market
Deposits (2) Market
Rank Institution Branches ($ in billions) Share
1 Bank of America 5,816 606.3 10.2%
2 JP Morgan Chase 3,052 420.8 7.1
3 Wachovia/Golden West 3,503 348.1 5.9
Wachovia stand-alone 3,218 288.5 4.9
4 Wells Fargo 3,209 262.6 4.4
5 Citigroup 916 205.8 3.5
6 US Bancorp 2,530 177.5 3.0
Source: SNL Financial as of 6/30/05.
1. Deposit weighted 5 year average population, county-weighted by deposits.
2. Deposit weighted income by zip codes.
3. Includes CA, NV, AZ, CO, NM, WA, OR, UT, ID, MT, WY and TX.
Page 12 – June Investor Update, 2006
Page 13 – June Investor Update, 2006
Combination strengthens Wachovia’s retail franchise, business mix and growth profile
WB's 2005 Segment Earnings* $6.8 billion
General Bank
57%
Mortgage-Related Earnings
Parent
5%
25%
Corporate & Investment Bank
Wealth Management
4%
9%
Capital Management
Combined Pro Forma** $8.3 billion
General Bank
65%
Capital Management
7%
Wealth Management
3%
Corporate & Investment Bank
21%
4%
Parent
Mortgage-Related Earnings
Mortgage Businesses Contribute an Estimated 15%*** of Combined Pro Forma Earnings
*Represents 2005 segment earnings prepared under generally accepted accounting principles; excludes merger-related and restructuring expense which equaled $167 million after-tax over this period. (Wachovia’s 2005 GAAP net income available to common shareholders was $6,623 million.) **Based on estimated segmentation of Golden West’s earnings for year ended 12/31/05. Does not include anticipated purchase accounting adjustments. ***Does not include earnings from home equity lending in branches or modest estimated earnings from Wachovia’s investment mortgage and MBS portfolio.
*Includes AmNet production post-consummation (closed December 2005).
Page 14 – June Investor Update, 2006
Wachovia and Golden West Mortgage integration
WB Mortgage
2005 production: $55.3 billion* Predominantly East Coast retail focus Products: Fixed rate and conventional ARMs Deepen channel depth:
Wholesale brokers Retail branches Wachovia Securities Wealth Management Internet
By offering option ARM
Underwritten and serviced by GDW platform (25% of incremental volume)
GDW Mortgage
2005 production: $51.5 billion Predominantly West Coast wholesale focus Product: Option ARM
Deepen channel depth:
Wholesale brokers Retail branches
“Loan Experts” (in-house retail broker) Internet
By offering fixed rate and conventional ARMs
Underwritten and serviced by WB platform (75% of incremental volume)
Page 15 – June Investor Update, 2006
Golden West
Proven, low risk origination model
Low Balance Sheet Risk
Average loan balance < $250,000 Average LTVs of 68% No subprime
Product Features
Payment rates closer to market Average 10-year reset period
Reduces risk of payment shock in rising rate environment
Conservative underwriting
Underwritten to fully indexed rate Diligent and methodical documentation standards In-house appraisers
Net Charge-Offs / Avg. Loans
Golden West Top 35 US Bank Average Top US Thrifts Avg - ex GDW
1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
-0.20%
GDW 15 year Average Charge-offs = 5 bps
Peak Year 18 bps
'90
'92
'94
'96
'98
'00
'02
'04
1Q'0 6
CA Real Estate Crisis 11 bps
0 bps
*Pro forma for Golden West. Data as of March 31, 2006.
Diversified loan portfolio $251 billion consumer portfolio* $130 billion Wachovia
90% secured (additional 8% guaranteed) 75% average LTV, wtd. avg. FICO 719 83% of exposure to WB footprint customers 6% subprime (FICO <620) 1Q06 losses: 15 bps $121 billion Golden West
100% secured
68% average LTV; wtd. avg. FICO 680-690; no subprime 1Q06 losses: 0 bps
$151 billion wholesale portfolio
77% secured
No industry > 5% (3-digit SIC) $1.5 million average size Minimal exposure to airlines, auto 1Q06 losses: 5 bps
Pro forma loan portfolio
Other Consumer RE Secured
14%
Student
3%
Auto, Other Consumer
5%
Commercial Financial & Agricultural
22%
3%
Commercial Foreign
4%
Commercial Leasing
8%
Commercial RE
11%
Consumer Mortgage
30%
Golden West Mortgage
Page 16 – June Investor Update, 2006
Source: Company reports.
Page 17 – June Investor Update, 2006
Credit quality
Risk reduction = best-in-class credit positioning
Net Charge-off Ratio
0.99%
0.70%
0.33%
0.09%
2001
2005
GDW
0.00%
WB
0.09%
USB
0.51%
WFC
0.77%
BAC
0.85%
JPM
0.93%
C
1.49%
Wachovia Median: Top 20 U.S. Banks
NPA/Loans Ratio
1.05%
1.04%
0.43%
0.28%
2001
2005
WB
0.28%
BAC
0.28%
GDW
0.36%
USB
0.43%
WFC
0.49%
JPM
0.62%
C
0.95%
Source: Company reports.
Page 18 – June Investor Update, 2006
Credit quality
Risk reduction = best-in-class credit positioning
Allowance/NPAs
3.78x
2.77x
1.75x
1.65x
2001
2005
PTPP Earnings*/Charge-offs
51.0x
5.82x
4.96x
11.2x
2001
2005
Wachovia Median: Top 20 U.S. Banks
BAC
5.02x
WB
3.78x
USB
3.45x
JPM
2.74x
WFC
2.53x
C
1.76x
GDW
0.69x
GDW
459.9x
WB
51.0x
USB
10.6x
BAC
6.7x
WFC
6.2x
JPM
5.0x
C
4.6x
*Pre-tax, pre-provision earnings.
Source: Form FRY-9C, as of March 31, 2006.
Page 19 – June Investor Update, 2006
Strong capital position
Tangible Common Equity as % of Tangible Assets
TCE/TA
Incl. servicing intangibles/ex-FAS115/133
5.90%
4.94%
5.09%
4.60%
4.52%
4.32%
4.70%
4.02%
4.72%
3.81%
6.17%
3.48%
USB
WB
C
JPM
BAC
WFC
8.17%
7.13%
6.86%
6.18%
6.11%
5.22%
USB
WFC
WB
BAC
JPM
C
Leverage Ratio
Economic capital figures are fourth quarter averages. $900 million added to 4Q04 economic capital to reflect additional month of SouthTrust.
Page 20 – June Investor Update, 2006
Strong capital positioning for low risk business model
Tangible common equity vs. economic capital –a widening gap $35 $30 $25 $20 $15 $10
-$0.9B $1.8B $4.2B $7.0B $8.1B
2001
2002
2003
2004
2005
Economic capital
Tangible common equity
Tier 1 capital
* Does not include expected contribution from Golden West.
**Dividends divided by net income available to common shareholders before merger-related and restructuring expenses, intangible amortization, and preferred dividends.
Page 21 – June Investor Update, 2006
Disciplined use of capital
Estimated $3+ billion of excess capital generated annually*
Reinvest in growth businesses
Cost of capital is 11%
Dividend payouts
Target cash dividend payout ratio** of 40—50%
Financially attractive acquisitions
IRR of 15%+
Cash EPS accretion by end of second year
Expect no major acquisitions for at least the next 2-3 years
Repurchase shares
Authorization of 85 million shares remaining (approx. 5% of shares
outstanding)
Capital ratio targets:
4.7%+ tangible capital ratio (excluding FAS 115/133)
6.0%+ leverage ratio
Expect to dip slightly below targets at closing of GDW merger
Term debt maturity summary
2006-2010 Term Maturities
($ billions)
2.9
4.1
3.9
4.9
5.1
2.9
1.7
3.6
2.4
3.5
2.1
2.3
1.7
1.3
0.0
2006 2007 2008 2009 2010
Wachovia Bank NA
Wachovia Corp
Golden West*
Outlook
Maintain sufficient holding company liquidity to satisfy debt obligations for 12 months
Continued solid deposit growth likely exceeded by loan growth, leading to pick up in bank issuance Obtain greater diversity of funding sources, specifically non-dollar debt
* Golden West maturities through 2010 exclude $39 billion in FHLB secured borrowings.
Page 22 – June Investor Update, 2006
Page 23 – June Investor Update, 2006
Wachovia corporate debt ratings
Wachovia Corporation
Wachovia Bank N.A.
Ratings
Current
Senior
Sub
Senior
Sub
Date
Outlook
Moody’s
Aa3
A1
Aa2
Aa3
11/20/02
Stable
S&P
A+
A
AA-
A+
5/08/05
CreditWatch
Positive
Fitch
AA-
A+
AA
A+
3/21/05
Stable
Selected comments:
S&P (5/8/05): “The CreditWatch positive placement of the ratings reflects the strengths of merging the two banking franchises, the wider geographic expansion of Wachovia’s retail branch franchise, and the addition of a national residential adjustable-rate mortgage franchise to the lending business at Wachovia… Golden West’s ARM lending franchise provides a lower-risk, high-quality retail consumer lending business that fills a void in Wachovia’s current retail banking business.” Moody’s (5/2006): “A well-managed consumer and commercial banking business provides Wachovia with a large core deposit base which is a keystone to its strong liquidity and an important source for earnings.” Fitch (5/2006): “…WB has approached operational risk management, including risks associated with mergers, quite cautiously and has established a good track record in recent years.”
Page 24 – June Investor Update, 2006
Wachovia’s value proposition
Resilient, diversified scale businesses
Footprint in higher growth markets
Sales and service leadership
Aggressive, effective credit risk management
Disciplined capital use
Low-risk, fortress balance sheet
Going forward:
Superior execution
Seamless merger integration
Strong retail sales culture; upside revenue opportunity with
Golden West
Improved market-related revenues
Generate significant excess capital
Page 25 – June Investor Update, 2006
Additional Information
Sources: *SNL Financial as of 6/30/05. Includes CA, NV, AZ, CO, NM, WA, OR, UT, ID, MT, WY and TX
** Inside Mortgage Finance
Page 26 – June Investor Update, 2006
Market leadership across all businesses
General Bank
Corporate and Investment Bank
Capital Management
Wealth Management
Dominant East Coast presence; No. 1 deposit market share in Southeast No. 3 nationwide deposit market share No. 1 middle-market commercial lender in footprint No. 5 pro forma deposit share in Western US* No. 7 pro forma share of US mortgage originations
Top 3 leveraged loan syndications and US CDOs
Top 10 issuer of domestic high yield, high grade, preferred stock and equity Top 3 provider of large corporate cash management services Top 3 US asset-based lending lead arranger
3rd largest full-service retail brokerage network with presence in 49 states Top 20 US mutual fund company 2nd largest bank annuity provider
4th largest manager based on AUM for clients with $1 million+ investable assets Top 3 personal trust provider Top 10 commercial insurance brokerage firm
Page 27 – June Investor Update, 2006
Steady improvement in profitability
Return on Tangible Assets*
Return on Tangible Equity*
1.06%
1.37%
1.38%
1.38%
1.46%
2001
2002
2003
2004
2005
20.3%
23.5%
24.2%
26.7%
29.6%
2001
2002
2003
2004
2005
*Ratios based on net income before after-tax effect of merger-related and restructuring expenses of: 2005, $167 million; 2004: $203 million; 2003: $258 million; 2002: 243 million; 2001: $737 million. 2003 also excludes a benefit of $17 million related to a cumulative effect of a change in accounting treatment.
*Total Retail & Small Business revenue.
1Q06 results exclude Westcorp and card results.
General Bank sales management practices drive organic growth
Same Store Sales Production*
($ in thousands)
Deposit Production per Branch
+23% $3,765 $4,625
1Q05
1Q06
Loan Production per Branch
+20% $2,951 $3,549
1Q05
1Q06
Revenue* per Financial Center
($ in thousands)
+15% $657 $706 $733 $748 $756
1Q05
2Q05
3Q05
4Q05
1Q06
*Same store sales production defined as production generated by a branch that has been open for a minimum of three years in the legacy Wachovia franchise. Deposits defined as FAB 5 plus CDs.
Loans defined as Big 3 loans.
Page 28 – June Investor Update, 2006
Page 29 – June Investor Update, 2006
General Bank leveraging a powerful sales culture drives growth
Strong sales culture drives revenue and balance sheet growth High branch productivity as a result of best-in-class sales management and execution Success drivers include consistent sales processes, incentives, coaching, and targeted customer data
Legacy Wachovia Loan Production as a % of Legacy FTU Branches at Merger
116%
+72%
43%
25%
Merger
1 yr post-merger (Merger*)
< 4 yrs post-merger (Merger*)
*Legacy Wachovia production as a percentage of legacy First Union production at the time of the merger, 3Q01.
Legacy SouthTrust Loan Production as a % of Legacy WB Branches at Merger
+105%
22%
45%
Merger
1 yr post-merger (Merger*)
*4Q05 legacy SouthTrust production as a percentage of legacy Wachovia production at the time of the merger, 4Q04.
Page 30 – June Investor Update, 2006
Capital Management focus on managed accounts drives organic growth
Managed Account Assets as a % of Total Client Assets
11%
13%
16%
17%
20-25%
Managed Account Assets ($ in billions) $68 $82 $106 $120
2003
2004
2005
1Q06
2007 Goal
Recurring Revenues as a % of Total Revenues
70%
57%
55%
50%
39%
Recurring Revenues* ($ in billions) $0.7 $2.3 $2.1 $1.3
2003
2004
2005
1Q06
2007 Goal
*Excluding referral fees
Page 31 – June Investor Update, 2006
04060VC65 (WB Fixed Income)
Wealth Management’s focus on relationship management drives organic growth
Quarterly Balances
($ in millions)
Core Deposits
+9% $13,303 $14,557
1Q05
1Q06
+21% Loans $12,829 $15,526
Assets Under Management
($ in billions)
+6% $64.6 $64.9 $65.6 $65.6 $68.3
1Q05
1Q06
1Q05
2Q05
3Q05
4Q05
1Q06
2000 market share is combined legacy First Union and legacy Wachovia.
Sources: Converts (Bloomberg), Equity (EquiDesk), High Grade excluding self issuance (Bloomberg), High Yield (Bloomberg), Loan Syndications (Loan Pricing Corporation), completed M&A deals (Thomson Financial), Preferreds (Bloomberg).
Page 32 – June Investor Update, 2006
7.4% 6.8% 6.9%
6.7% 6.0% 5.4%
4.0% 3.5%
3.1% 3.2%3.2% 2.9% 3.0% 2.8%
1.3% 1.2% 0.7%
0.5%
0.2% 0.3% 0.2%
0.0% 0.0%
TOTAL Converts Equity High High Loan M&A Preferreds Grade Yield Syndications
CIB’s market share gains drive organic growth
Wachovia Market Share
(based on lead deal $ volumes)
10.3%
2000 2005 1Q06
Global leader
Trade finance and correspondent banking
40+ offices throughout Europe, Asia and Latin America 13,000 trade services clients (financial institutions and U.S.-based corporations) Top 3 in trade outsourcing services to world banks 3rd in combined CHIPS, Fed and ACH payment volume 4th in U.S. trade volume (letters of credit) Correspondent banking -market share
#1 Asia
#1 Latin America #4 Western Europe
Page 33 – June Investor Update, 2006
Page 34 – June Investor Update, 2006
Investing for sustainable growth
Sustainable growth through organic growth opportunities
Consumer Lending
Focused marketing to WB’s 11 million retail/small business households
Introduce credit cards: lower marketing and credit costs, higher revenue/ customer - breakeven early-mid ’07; not a nationwide/mass mail model; expect modest portfolio with relationship focus Increase WB mortgage sales: mortgage sales/month from 0.3 > 2.5 per branch; mortgage sales in CMG brokerage channel grew to $1.1 billion in 2005
Sustainable growth through financially sound and strategic acquisitions
Auto Loans
Retail Banking & Mortgage
Westcorp acquisition closed March 2006 $13 billion in owned auto loans, average life 2.8 years; 9th largest originator Relationships with 11,000 dealers and 1.2 million indirect customers Offer floor-plan lending to WES; penetration of WB dealers with WES product
Golden West Financial acquisition announced May 7, 2006
Offer full product set to GDW retail, wholesale channels
Increase ARM sales through increased GDW broker penetration, WB channels Expand GDW branch offerings (checking, consumer loans, business, investments)
* Source: SNL; 5-year average population growth, county-weighted by deposits
** Source: SNL; zip-code weighted by deposits
*** Source: SNL
Combination further strengthens retail franchise and enhances demographics
Projected Population Growth of Core Markets*
U.S. Average = 6.3%
9.5%
8.9%
7.7%
6.6% 5.8%
5.0%
WB / WFC BAC USB JPM C GDW
Weighted Average Deposit Market Share by MSA
27.5%
22.7% 21.8%
19.2%
15.0% 14.1%
WFC JPM WB / BAC USB C GDW
*Deposit weighted 5 year average population growth within MSAs. Source: SNL Financial as of 6/30/05.
Page 35 – June Investor Update, 2006
Combined Geographic Footprint
Deposit-Wtd
Deposit-Wtd
MSA
Population
Avg HH
Population
Growth*
Income**
% U.S. Pop.***
Wachovia
8.77%
$82,000
42%
Golden West
8.91%
91,000
36%
Wachovia Pro Forma
8.79%
84,000
55%
SunTrust
8.63%
75,000
17%
Wells Fargo
7.77%
80,000
36%
BB&T
7.00%
70,000
18%
Bank of America
6.83%
80,000
66%
AmSouth
6.46%
60,000
8%
Regions
5.85%
59,000
25%
JPMorgan Chase
5.74%
94,000
54%
Citigroup
5.18%
104,000
34%
Huntington
5.07%
68,000
7%
Marshall & Ilsley
5.04%
81,000
12%
Fifth Third
4.51%
73,000
18%
U.S. Bancorp
4.44%
66,000
39%
Comerica
4.27%
83,000
21%
Capital One/North Fork
3.28%
92,500
15%
KeyCorp
2.73%
65,000
20%
M&T
2.26%
72,000
15%
PNC
1.64%
83,000
14%
National City
1.45%
74,000
14%
U.S. Average
6.26%
$61,000
83%
Page 36 – June Investor Update, 2006
Option ARM loan features
Thirty year, monthly adjusting, variable rate mortgage secured by a first lien
Accrual rate based on monthly-moving index rate plus a fixed margin
Payment options: Fully amortizing; 15-year fully amortizing; interest-only; minimum payment
Minimum payment = established fixed monthly amount for one year; represents fully amortizing payment based on lower than market interest rate; resets annually with 7.5% increase on prior year’s payment
Permits negative amortization up to 125% of the original loan amount on loans with originated LTV 85%; or up to 110% for loans with original LTV > 85%
Loans “recast” after 10 years or when loans reach caps of 125% or 110%
Resets to amortize principal and interest over remaining life of the loan or borrower refinances
Loans generally have a maximum interest rate cap over the life of the loan Example: $225,000 30-year loan with 70% LTV; initial interest rate 6%; minimum payment option interest rate 2%; ability to borrow up to $281,250; at 125% cap equating to LTV of 87.5%
15-year fully amortizing: $
1,899
Fully amortizing: $1,349
Interest only: $1,125
Minimum: $832
Creates negative amortization of $293 in first month Year-two minimum payment resets to $894.40
*Loans originated at LTVs above 80% covered by mortgage insurance. **As of March 31, 2006.
***Assumes deferred interest of $3.666 billion and loans outstanding of 3/31/06.
Page 37 – June Investor Update, 2006
Golden West
Mortgage portfolio statistics
Average
Balance
Loan Size
$121 billion
< $250K
(Average Portfolio LTV = 68%)
At Origination
LTV
< 70
$54 billion
LTV
70-80
$61 billion
LTV
80+
$ 6 billion *
Deferred interest income is recurring, recoverable, and not subject to management discretion / estimation
Created when borrowers elect minimum payment option for any monthly payment
Deferred interest is added to legal balance of principal owed by borrower
Minimum payment reset once per year at a maximum increase of 7.5%
Loans underwritten with expectation of negative amortization: loans capped at 125% of original loan amount for loans with original LTV < 85% and 100% for loans with original LTV > 85%
Minimum payment option that creates deferred interest is no different than the minimum payment option on a credit card, but at GDW the loan
Is collaterized, appraised by in-house staff, average LTV 68% at origination
84.5%* of originations are due to refi’s
Deferred interest has grown from $90 million in 1Q05 to $666 million in 1Q06 or 0.55% of total outstandings
May grow by $2-3 billion over next 24 months, equals approximately 3% of outstandings**
Would raise effective average LTV from 68% to 70%
Page 38 – June Investor Update, 2006
Option ARM spread information
Indices used by Golden West
Definition
% of Portfolio
COSI
Equal to GDW’s cost of savings
54%
CODI
Based on average three-month certificates
37%
of deposit yield as published by Federal
Reserve in H-15 report (12 mo. moving average)
COFI
Equal to average cost of funds of
8%
savings institutions in 11th FHLB District
Index elected by borrower at origination
All indices reprice upward after market rates stabilize.
Indexes should rise by 75-125 bps after Fed stops raising rates
Also would benefit from indexed loans exceeding deposit balances
Risks to repricing benefits include higher prepayments, lower margins on new loans, shift from higher yielding CODI ARMs to lower yielding COSI ARMs
Page 39 – June Investor Update, 2006
Resilience through market cycles
1994
2005
Product Features
Essentially the same.
Essentially the same.
Option ARMs:
Option ARMs:
Portfolio
89% of loans, 93% of originations
99% of loans and originations
Features
California loans/total loans = 78%
California loans/total loans = 62%
1989-1994 average charge-offs = 11 bps
1997-2005 average charge-offs = 0 bps
Peak year charge-offs = 18 bps
Current charge-offs = 0 bps
Credit
Experience
Peak year NPAs/loans = 1.50%
Current NPAs/loans = 0.32%
Debt Ratings:
Debt Ratings:
Holding company: A2, A
Holding company: A1, A+
Subsidiary: A1, A+
Subsidiary: Aa3, AA-
Pre-tax earnings opportunity
Strong sales cultures drive revenue opportunities
2009 expected pre-tax earnings lift = $230 million $160 million
World Savings Mortgage
Wachovia Mortgage
$60 million
$100 million
Expand product set
Increase sales of option
to include fixed rate
ARMs
$17 billion incremental
$7 billion in incremental
production at 30-40 bps
production at 225-250 bps
spread
spread
Channel focus
Company focus
Retail channel offers
WMC distributes option
“marketable” products
ARMs in higher-cost metro
through Wachovia
areas
Mortgage
Wholesale channel gains
Wholesale channel
full offering which will
gains full product
increase broker customer
offering which should
base
increase broker
customer base
$70 million
World Savings Bank Branches Offer checking products to current customers and through customer acquisition
$3.1 billion deposits
Does not include:
Other deposit product sales
Incremental consumer loans
Business banking, commercial lending
Investment sales
Wealth opportunities
Note: revenue synergies not included in accretion/IRR analysis
Page 40 – June Investor Update, 2006
*Assumes marginal tax rate of 39%.
Page 41 – June Investor Update, 2006
Modest expense efficiencies assumed
Expect annual expense efficiencies of $53 million after-tax by 2008
9% of Golden West
and 0.5% of pro forma 2005 expense base
Reductions primarily in headquarters, back-office and redundant
systems from both companies
55 branch consolidations projected
1,100 planned position reductions
All front-line, customer-facing employees expected to have positions
($ in millions)
Pre-tax
After-tax*
Personnel
$70
$43
Taxes
30
18
Other
42
26
Expense increase (branches, benefits)
(55)
(34)
Total
$87
$53
Expect to realize 50% in 2007 and 100% in 2008
Page 42 – June Investor Update, 2006
Excess capital created through WB diversification effectively funds premium
Capital required to support Golden West operations is reduced through diversification provided by Wachovia’s business mix and balance sheet Excess capital approximates premium paid to Golden West shareholders
Reduces effective price paid to market price, P/E paid to Wachovia’s P/E
Limits cash EPS dilution
Excess capital and market premium*
Estimated GDW excess capital released by WB
$3.7-4.1B
Market premium paid (15%)
$3.3-3.7B
Limited cash EPS dilution
Golden West 2007 P/E**
11.56x
Wachovia 2007 P/E**
11.40x
Wachovia 2007 cash EPS dilution***
(0.4%)
* Ranges depend on closing date, dilution treatment of GDW stock options. ** Based on May 5, 2006 prices and First Call consensus estimates (GDW: $70.51, $6.10 EPS; WB: $59.39, $5.21 EPS).
***See pp. 14-15 of May 8, 2006 presentation for calculations of illustrative cash EPS dilution and accretion.
Page 43 – June Investor Update, 2006
Summary financial statements
Consolidated Balance Sheet
March 31, 2006
Pro Forma
Pro Forma
(in millions)
Wachovia
Golden West
Adjustments
Combined
ASSETS
Cash and cash equivalents
$33,038
$1,821
$-
$34,859
Trading account assets
39,385
-
-
39,385
Securities
118,818
1,766
-
120,584
Loans, net of unearned income
280,932
121,057
-
401,989
Allowance for loan losses
(3,036)
(300)
-
(3,336)
Loans, net
277,896
120,757
-
398,653
Loans held for sale
7,859
137
-
7,996
Goodwill
23,443
-
14,216
37,659
Other intangible assets
1,523
-
1,849
3,372
Other assets
39,880
3,075
-
42,955
Total Assets
$541,842
$127,556
$16,065
$685,463
LIABILITIES AND STOCKHOLDER'S EQUITY
Noninterest-bearing deposits
67,365
13
-
67,378
Interest-bearing deposits
261,199
61,570
-
322,769
Cash and cash equivalents
74,221
8,877
-
83,098
Other liabilities
16,070
1,469
838
18,377
Long-term debt
70,218
46,584
5,762
122,564
Minority interest
2,980
-
-
2,980
Total Stockholders' equity
49,789
9,043
9,465
68,297
Total Liabilities and stockholder's equity
$541,842
$127,556
$16,065
$685,463
*Pro forma financial illustration included in Form 8-k filed May 19, 2006. Please see additional information there for assumptions used in pro forma adjustments.
Page 44 – June Investor Update, 2006
Summary financial statements
2005 Income Statement
Year Ended December 31, 2005
Pro Forma
Pro Forma
(in millions)
Wachovia
Golden West
Adjustments
Combined
CONSOLIDATED SUMMARIES OF INCOME
Interest income
$23,689
$6,200
$317
$30,206
Interest expense
10,008
3,265
344
13,617
Net interest income
13,681
2,935
(27)
16,589
Provision for credit losses
249
8
-
257
Net interest income after provision for credit losses
13,432
2,927
(27)
16,332
Fee and other income
12,219
462
(317)
12,364
Merger-related and restructuring expenses
292
-
-
292
Other non-interest expenses
15,555
963
336
16,854
Minority interest in income of consolidated subsidiaries
342
-
-
342
Income before income taxes
9,462
2,426
(680)
11,208
Income taxes
3,033
940
(265)
3,708
Net income
$6,429
$1,486
$(415)
$7,500
*Pro forma financial illustration included in Form 8-k filed May 19, 2006. Please see additional information there for assumptions used in pro forma adjustments.
*Pro forma financial illustration included in Form 8-k filed May 19, 2006. Please see additional information there for assumptions used in pro forma adjustments.
Page 45 – June Investor Update, 2006
Summary financial statements
1Q06 Income Statement
Three Months Ended March 31, 2006
Pro Forma
Pro Forma
(in millions)
Wachovia
Golden West
Adjustments
Combined
CONSOLIDATED SUMMARIES OF INCOME
Interest income
$6,707
$2,019
$-
$8,726
Interest expense
3,217
1,136
86
4,439
Net interest income
3,490
883
(86)
4,287
Provision for credit losses
61
4
-
65
Net interest income after provision for credit losses
3,429
879
(86)
4,222
Fee and other income
3,517
36
-
3,553
Merger-related and restructuring expenses
68
-
-
68
Other non-interest expenses
4,171
271
84
4,526
Minority interest in income of consolidated subsidiaries
95
-
-
95
Income before income taxes
2,612
644
(170)
3,086
Income taxes
884
253
(66)
1,071
Net income
$1,728
$391
$(104)
$2,015
Page 46 – June Investor Update, 2006
Cautionary statement
This investor presentation contains certain forward-looking statements, including, without limitation, (i) statements relating to the benefits of the proposed merger between Wachovia and Golden West (the “Merger”), including future financial and operating results, cost savings, enhanced revenues and the accretion / dilution to reported earnings that may be realized from the Merger, (ii) statements regarding certain of Wachovia’s and/or Golden West’s goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (iii) statements preceded by, followed by or that include the words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” or similar expressions. These statements are based upon the current beliefs and expectations of Wachovia’s and/or Golden West’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ materially from that expressed in such forward-looking statements: (1) the risk that the businesses of Wachovia and/or Golden West in connection with the Merger will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame; (3) revenues following the Merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the ability to obtain governmental approvals of the Merger on the proposed terms and schedule; (6) the failure of Wachovia’s and/or Golden West ’s shareholders to approve the Merger, respectively; (7) the strength of the United States economy in general and the strength of the local economies in which Wachovia and/or Golden West conducts operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on Wachovia’s and/or Golden West’s loan portfolio and allowance for loan losses; (8) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (9) potential or actual litigation; (10) inflation, interest rate, market and monetary fluctuations; and (11) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on Wachovia’s capital markets and capital management activities, including, without limitation, Wachovia’s mergers and acquisition advisory business, equity and debt underwriting activities, private equity investment activities, derivative securities activities, investment and wealth management advisory businesses, and brokerage activities. Additional factors that could cause Wachovia’s and/or Golden West’s results to differ materially from those described in the forward-looking statements can be found in Wachovia’s and Golden West’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning the proposed Merger or other matters and attributable to Wachovia or Golden West or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia and Golden West do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this news release.
Page 47 – June Investor Update, 2006
Additional information
The proposed Merger will be submitted to Wachovia’s and Golden West’s shareholders for their consideration. Wachovia will file a registration statement, which will include a joint proxy statement/prospectus, and Golden West will file a joint proxy statement, and each of Wachovia and Golden West may file other relevant documents concerning the proposed Merger with the SEC. Shareholders are urged to read the registration statement and the joint proxy statement/prospectus regarding the proposed Merger when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Wachovia and Golden West, at the SEC’s website (http://www.sec.gov). You will also be able to obtain these documents, free of charge, at Wachovia’s website (http://www.wachovia.com) under the tab “Inside Wachovia – Investor Relations” and then under the heading “Financial Reports—SEC Filings”. Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, free of charge, by directing a request to Wachovia Corporation, Investor Relations, One Wachovia Center, 301 South College Street, Charlotte, NC 28288-0206, (704)-374-6782; or to Golden West, Investor Relations Department, 1901 Harrison Street, Oakland, CA 94612, (510) 446-3420.
Wachovia and Golden West and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies from the shareholders of Wachovia and/or Golden West in connection with the proposed Merger. Information about the directors and executive officers of Wachovia is set forth in the proxy statement for Wachovia’s 2006 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 13, 2006. Information about the directors and executive officers of Golden West is set forth in the proxy statement for Golden West’s 2006 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 10, 2006. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed Merger when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.